Precious Metals

Ghana has increased taxes on miners hoping to extract more revenue from its gold resources. This trend of resource nationalism is considered business risk #1 for miners in 2011-12.

By Michelle Smith – Exclusive to Gold Investing News

In his 2012 annual budget to parliament, Ghana’s Finance Minister, Dr. Kwabena Duffuor introduced higher taxes aimed at extracting more financial benefits from the gold mining sector.

Ghana, Africa’s second largest gold producer, plans to implement a new 10 percent windfall tax on miners next year. Miners will also be subject to a corporate tax increase, raising rates from 25 percent to 35 percent.

Dr. Toni Aubynn, CEO of the Ghana Chamber of Mines stated that in 2010 mining accounted for about 23 percent of Ghana’s internally generated revenues.

There are some, however, who state that Ghana has not benefited enough from rising gold prices. Among them is the IMF, which is believed to be an instigator in these new revenue seeking measures.

Following a two week visit to Ghana in October, the IMF released a statement saying “the mission encouraged the government to continue its efforts to strengthen tax administration. It also supported adoption of additional tax policy measures, particularly in the area of natural resources, where taxation is low in comparison with peer countries.”

Ghana’s new tax moves have brought forth warnings and cautions about the impact these measures could have, such as making the nation unattractive for future mining efforts and scaring off investors.

Particularly wrankled within Ghana’s mining community is Goldfields (NYSE:GFI,JSE:GFI). Yesterday in Johannesburg, CEO Nick Holland, said “it isn’t sustainable for Gold Fields to be paying higher royalties than other gold producers in the country.”

He also warned that the taxes threaten the $1 billion in projects that Goldfields has planned within the country.

Even Aubynn warned that the measures need to be implemented ‘scientifically’ because high gold prices do not necessarily mean mining companies are making more money. According to Ghana Business Week, he said some gold miners are currently producing at $1,200/oz.

At that rate, their gold mining costs appear to be far above the average for the continent. The average per ounce production cost in “other Africa” (which excludes South Africa) in Q1 2011 was $647 resulting in a record cost/price differential of $740/oz, according to a gold mine cost report.

Ghana is one of the latest to command headlines for its new mining tax measures, but it is far from the only nation that is seeing dollar signs when looking at its miners.

Ernst & Young annually analyze business risks and reported that for 2011-2012, the #1  risk for miners is resource nationalization (#4 in 2010), which involves countries attempting to get more money from their minerals.

The report says resource nationalization takes many forms, including increased royalties, taxes and mandatory participation, whereby governments mandate the involvement of certain stakeholders.

The mining and metals sector rebounded quickly from the global financial crisis, making it an early target to restore treasury conditions, the report said.

2011 has marked a period when more governments are aiming at that target. A growing amount of legislation has been implemented and is being considered that attempts to extract more profits from the minerals that miners are extracting. This is a trend that Ernst & Young predict is only likely to increase.

 

I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.

 

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